Home buyers, wait for GST rollout on July 1. Here’s why

Is it a good time to buy a house? This is the perennial question on the minds of home buyers. But this question assumes significance as India moves to a new indirect tax regime, the Goods and Services Tax (GST) from July 1.

Experts say that buyers will benefit if they buy houses in projects launched post July 1. Though a 4.5% service tax is being replaced by a 12% GST, the advantage is a number of hidden and cascading taxes will be removed under the new regime. Developers will also get several tax credits under GST, leading experts to conclude that new projects launched July 1, are likely to pinch buyers less.

VAT and sales tax are not reflected on the invoice in most states, when a consumer buys a house, but are added to the cost.

“The heavily taxed real estate sector welcomes a single stable 12% GST rate, inclusive of the value of land and with full input tax credits,” said Rajeev Talwar, CEO, DLF and chairman of NAREDCO.

But these tax credits will not be available for projects that are under-construction and nearing completion, also ready flats.

To allay fears whether developers will pass on the tax credit benefits to consumers, the government has proposed anti-profiteering measures.

Affordable housing (houses that cost less Rs 30 lakh) will continue to be outside the tax net.

Many developers are offering pre-GST discounts but experts warn against them as they are ways for builders to collect money and make pending payments. Reducing inventory through deep discounts is also a motivation for developers.

Builders in Noida and Greater Noida are advising their existing buyers to clear their remaining property dues before July 1 to avoid a 12% GST and pay 4.6% service tax, instead.

Experts warn against such claims.

“The government has introduced anti-profiteering clauses to ensure the input tax credits that builders claim after GST is passed on to buyers, of houses that will be handed over after July 1. The expectation is the builders will extend a discount on the amount due from buyers to protect them against a 12% GST,” said Amit Bhagat, partner, indirect taxes, PwC India

But experts and developers are divided on the impact that GST will have on the real estate sector.

“Confusion persists about the impact of GST on the different segments of housing such as luxury, affordable. But we are working closely with the government and are hopeful that initial hiccups will be ironed out once GST is implemented,” said Manoj Gaur, MD, Gaursons and vice-president of CREDAI (National). The 5-8% stamp duty charged during registration of a house will continue to be levied under GST, but developers want clarity on it.

While developers are cheering the unified tax regime that will replace the plethora of state and central levies on realty, but many said that due to multiple layers of GST on land and raw materials, project costs could escalate.

Many developers are offering pre-GST discounts but experts warn against them as they are ways for builders to collect money and make pending payments. Reducing inventory through deep discounts is also a motivation for developers.